Option Investor
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Daily Newsletter, Tuesday, 05/16/2000

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The Option Investor Newsletter              Tuesday 5-16-2000
Copyright 2000, All rights reserved.                   1 of 2 
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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       5-16-2000           High     Low     Volume Advance Decline
DOW    10934.60 + 126.80 10971.20 10816.00   951,590k 1,672  1,267
Nasdaq 3,717.57 + 109.92  3729.12  3626.99 1,497,969k 2,329  1,749
S&P-100  784.23 +   7.70   787.61   775.67    Totals  4,001  3,016
S&P-500 1466.04 +  13.68  1470.40  1450.76            57.0%  43.0%
$RUT     505.98 +   8.17   507.52   497.81
$TRAN   2865.27 +  27.23  2885.24  2841.03
VIX       26.71 -   0.74    28.21    25.98
Put/Call Ratio       .63
******************************************************************

We Got What Was Expected, Yet Uncertainty Prevails

Well, we finally got it.  There is no longer any uncertainty as to
what the Fed will do...until next month.  And hopefully the CBNC 
hype will subside.  Today, the FOMC proved their vigilance in 
fighting inflation by serving up a 50 basis point rate hike for 
both the Fed Funds and the discount rate.  Widely expected, overly
hyped.  This has been priced into the markets since late-April 
when they began their slow declines on light volume.

The question still remains, do we need a 50 basis point hike?  
This is the biggest rate hike in five years.  It is interesting to 
look at because the fear of 50 all started when last month's PPI 
and CPI came in higher than expected.  All of a sudden, the 
paranoid inflation-watchers began screaming armageddon.  Next 
thing you know, everyone's talking about a 50 point hike and it 
became the expectation, and eventually a self-fulfilling prophecy.
Why?  Because if the Fed didn't raise by 50 and investors thought 
the Fed was getting behind the yield curve, the markets would have
reacted quite negatively.  Yet, I would like to point out that 
last Friday's PPI was in line and today's CPI was benign.  The 
point is that when looking at these inflationary data reports, it
is important to look at the trend and not to put so much merit in 
an anomaly.  Last month's increases were a blimp on the map.  The
uncertainty for May has been quenched but talk about what the Fed
will do in June is already heating up.  Along with the rate hike 
came some fierce rhetoric from the FOMC, stating that they will 
continue to be aggressive.  So will the volume come back now?  
Has enough certainty returned to our markets?  This brings me to 
the market's reaction.

In regards to yesterday's NASDAQ turnaround late in the session, 
a trader said it was the rally before the rally.  And today, we
opened higher and flat-lined prior to the Fed announcement.  On
the positive side, volume was a bit stronger in the morning.  As
we fought off heavy eyelids until 2:15 EDT, nothing was happening
in the market.  The bets had been made and the waiting game began.
The NASDAQ was holding on just above the 3700 level and the DJIA
was strong at the 10900 level.  There was nothing but green on 
the NASDAQ ticker, showing many tech favorites up $4, $7, $9.  
With great anticipation, 2:15 EDT rolled around and the expected
became certain.  It was the typical, "Buy the rumor, sell the 
news" trading, and both markets took a dip down.  Which way we
would go was as uncertain as you get, with the bulls and the bears
battling it out.  So who won?  Well, both indices finished up on 
the day almost exactly where they were right when the Fed 
announced.  The bounce was nice to see but the volume still 
continues to be the main concern.  Volume on the NYSE was 950 mln, 
not too impressive.  NASDAQ volume was 1.46 bln.  We're still 
waiting for the good ol' days of NYSE 1 bln and NASDAQ 2 bln.

Looking at the DJIA chart, we can see that the Industrials have 
made a quiet rally since last Wednesday's low of 10292.  Having 
climbed over 600 points on four consecutive up-sessions, the 
DJIA tacked on 6% and is approaching formidable resistance at
11000.  DJIA ended up 126.79 to 10930.


 

DJIA standouts included HWP(+5.00), IBM(+4.81), and MMM(+4.13).

As for the NASDAQ, it was encouraging to see it hold the 3700
level throughout the day.  Even after the post-rate hike dip 
which bounced from 3626, the NASDAQ managed to claw its way back 
above 3700.  Notice how choppy trading has been given the weak 
volume on the NASDAQ.  Less volume means more dramatic moves.  It 
continues to trade in a range and will continue to do so until
strong volume returns.  And with the summer nearing, the return
may be further off then thought.

Well, as we patiently await the return of volume, we have seen 
some increased activity in the merger and acquisition business
lately.  Today, Terra Networks(TRRA) announced that it will 
be buying Lycos, Inc.(LCOS).  The Spanish Internet group offered
$12.5 bln in stock for the U.S. Internet search engine, which 
will create one of the world's largest Internet companies.  In
a bid to expand its global reach, this merger will allow TRRA
to target 30 mln Spanish-speakers in the U.S.  Once completed, 
the combined company will be called Terra Lycos, Inc. and will
have an estimated 50 mln unique users.  They will have operations
in 37 countries.  LCOS closed at $72.63, up $11.  TRRA fell $3.31
to $53.56.  

With late-season earnings, HWP came out after the bell and beat
the Street estimates by five cents, posting 2nd quarter earnings
of $0.87 per diluted share.  Revenues rose 15% to $12 bln from 
$10.5 bln in the same period one year prior.  The company 
attributes this increase to its notebook revenue and unit growth
year-over-year.  Although a good earnings report, HWP was down in 
after hours trading by $3 to $137.  

HWP's recent spin-off company, Agilent(A) also posted earnings 
after the close.  Their net earnings came in at $166 mln, or 
$0.36 per share, including a one-time gain.  Minus that gain, 
earnings were $0.32 per share, in line with analysts' estimates.
Agilent manufactures testing equipment for Internet service
providers and chip makers.  HWP still holds an 85% stake in the
company and is expected to distribute those remaining shares in
early June.  Agilent rose $7.81 to $96 in today's trading.

It appears that some life may be coming back to the markets as
companies continue to show good earning's growth and venture back
into the merger and acquisition market.  We finally got what we
were waiting for:  a 50 basis point rate hike.  The market's
reaction to this announcement today exemplifies investor 
indecision as to where they should take the market next.  Look 
for both the DJIA and the NASDAQ to continue their range-bound
trading.  During these choppy trading times, utilize support and
resistance levels in helping choose entries and exits.  Watch for
strong volume to confirm any breakout moves.  Even though we got 
the rate hike, there is still uncertainty in the markets.  
Uncertainty breeds volatility and volatility equals trading
opportunity.  Remember, there's nothing wrong with taking profits, 
no matter how small, and cut your losses early.  

Matt Russ 
Research Analyst



***********
IN THE NEWS
***********

Brocade Soars on Better-Than-Expected Results
By Cindy Christ

Fibre channel switch maker Brocade Communications Systems
rocketed more than 13 percent Tuesday, delivering the monster
results investors had come to expect before the tech wreck
halted the Nasdaq's spectacular rise.

Shares in Brocade (BRCD) closed up $11.06 at $126 after
trading up to $130.50 intraday and gaining nearly $9 in after-
hours trading Monday.

After yesterday's close, San Jose, Calif.-based Brocade posted
second quarter earnings of 11 cents a share, beating Street
estimates by 3 cents and reversing a 1 cent loss in the same
period last year.

The leading supplier of components used in storage area
networks called SANS reported net revenues of $62.1 million,
up 489 percent from $10.5 million a year ago.

Used to connect computer equipment holding massive amounts of
information generated by Internet- and data-based networks,
storage area networks are among the hottest areas of
technology.

Second quarter net income totaled $13.3 million, up $14.2
million from a net loss of $800,000 for the same period in
1999, and an 82 percent increase from $7.3 million reported in
the first quarter.

During the second quarter, Brocade produced $15.1 million in
cash, with total cash and short-term investments at April 29
totaling $111.5 million.

Gross margins, a percentage of sales less production costs,
jumped to 58 percent from 53 percent in the first quarter.

The company said the margin improvements were mainly due to
increased shipments of its SilkWorm 2400 and 2800 products and
higher sales to system integrators, which accounted for more
than 25 percent of total revenues, up from 5 percent a year
ago.

"We are pleased to deliver to our shareholders the fourth
consecutive period of quarter over quarter revenue and
earnings growth," said Greg Reyes, BROCADE president and chief
executive officer, in a press release.

During the quarter, Brocade signed up six new original
equipment manufacturers as customers, including EMC Corp.,
Hewlett-Packard, IBM, Intergraph, NCR and Unisys.

The company said its SilkWorm switches are now sold by 17
providers selling more than 90 percent of the world's external
storage systems.

Brocade's SilkWorm switches and software connect servers with
storage devices through a fibre channel SAN, allowing
companies to access and share storage.

On Tuesday, Robertson Stephens communications and networking
analyst Paul Johnson raised his earnings outlook for Brocade
based on the firm's strong second quarter showing.

Johnson boosted his earnings per share estimate for 2000 to 46
cents from 34 cents, and to 70 cents from 44 cents for 2001.

"We believe the strength in the quarter was due to continued
strong growth in sales of fibre channel based storage
equipment and the building momentum of the company's systems
integrator business," Johnson wrote in a research note.

"In the first calendar quarter, Brocade continued to take
market share with 68 percent of the fibre channel systems
business, and 38 percent of the overall fibre channel market,"
he added.



**************
MARKET POSTURE
**************

As of Market Close - Tuesday, May 16, 2000 

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************

DOW Industrials   10,000  11,400  10,935    Neutral   5.05
SPX S&P 500        1,400   1,500   1,466    Neutral   5.05
OEX S&P 100          750     800     784    Neutral   5.05    
RUT Russell 2000     450     550     506    Neutral   5.05    
NDX NASD 100       3,200   4,000   3,647    Neutral   5.05    
MSH High Tech        860   1,000     950    Neutral   5.05

XCI Hardware       1,360   1,600   1,444    Neutral   5.05    
CWX Software       1,100   1,300   1,258    Neutral   5.05
SOX Semiconductor    960   1,200   1,047    Neutral   5.05    
NWX Networking       900   1,100   1,053    Neutral   5.05
INX Internet         550     800     639    Neutral   5.05

BIX Banking          530     600     564    Neutral   5.11  
XBD Brokerage        400     500     478    Neutral   5.05    
IUX Insurance        540     620     643    Neutral   3.16

RLX Retail           900   1,000     927    Neutral   5.11   
DRG Drug             355     400     388    Neutral   4.28    
HCX Healthcare       710     800     793    Neutral   4.28    
XAL Airline          140     155     150    Neutral   3.10
OIX Oil & Gas        265     300     307    BULLISH   5.11  
 
Posture Alert    
As expected, the Fed raised rates by 50 basis points, and the 
relief rally continues. Most sectors participated in the rally; 
however, the Internet (+5.03%), Software (+4.05%), Morgan Stanley 
High Tech (+3.96%), and the NDX (+3.83%) led the way. The only 
loser for the day was Oil & Gas (-1.32%), but this sector has 
enjoyed a nice rally as of late. With this most recent action, we 
have upped Insurance to Bullish from Neutral.



****************
MARKET SENTIMENT
****************

Tuesday, May 16, 2000

Just What the Doctor Ordered!

The markets have started off the week on a solid note, as 
investors' bid up shares even in anticipation of an interest rate 
hike. The relief rally is just what the doctor ordered, as 
numerous beaten up sectors enjoyed solid gains. 

After the expected rate hike this afternoon, the markets behaved 
erratically as indexes seesawed dramatically while the market 
pundits interpreted the "Greenspeak" from the Fed. The Fed used 
strong language to indicate that they would stay ahead of the 
curve, which momentarily stalled the market out of fear. However, 
with two more interest rate hikes factored into the market 
already, these comments should not have been surprising, which is 
why the market closed near the highs of the day!

Looking ahead, the sentiment is still leaning in favor of the 
bears, which from a contrarian stand is positive. The overall 
put/call ratio stood at .63 today, while the equity put/call 
stood at .52. Both of these numbers have been and are still in 
bear territory. When looking at these statistics for the last 
several weeks, we continue to believe that a more meaningful 
rally will ensue. Whether it's this week, or after option 
expiration remains to be seen. However, with the latest round in 
corporate earnings being positive, as well as merger activity in 
the internet sector (Lycos, Terra Networks) we may see more 
follow through the remainder of this week. Regardless, too much 
focus has been placed on this Fed Meet, and now that it is over, 
we can start concentrating on other issues. Now don't get us 
wrong, every major economic indicator will still be extremely 
important; however, the skies are starting to clear from the Fed 
Storm Cloud. Have a good week! 
 

BULLISH Signs: 

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of 
analyst expectations. Hewlett-Packard and Dell Computer are the 
latest bellwethers to beat expectations.

Short Interest (NYSE):
Short interest on the NYSE fell 1.33% to 4,055,931,190 shares on 
April 14; however, this is still a high level and from a 
contrarian viewpoint, would be considered bullish. 


Mixed Signs:

Volatility Index (26.72):
Up until recently, the VIX has proved that the low 30's are an 
excellent buying opportunity, and the low 20's continue to be a 
great selling opportunity. The VIX may now be attempting to get 
back to the old trading range.


BEARISH Signs:

Interest Rates (6.106):
With the long bond breaking significant support levels, new highs 
may be attempted in the near future.

Liquidity Crunch:
With the fear of inflation, and the most likely scenario of 
several more rate hikes, liquidity in the marketplace will become 
a more significant issue and put more pressure on equities.

IPO Dilution:
With so many IPO's hitting the market, there seems to be dilution 
occurring where shares of finally freed up to sell by insiders. 
$58.6 billion of stock was freed up for trading in March, $67.3 
billion April, and $118.3 billion in May. This is too much 
stock for the system to handle. 
 
Energy Prices:
With the rapid rise in crude oil, everything from manufacturing 
to transportation will be affected by higher costs. These higher 
costs will be felt 1-2 quarters out, and could put pressure on 
profit margins. 

Investor Expectations:
More and more investors are now expecting high double-digit 
growth if not triple-digit expansion in their portfolios. This 
extreme positive sentiment could help fuel a future sell-off in 
technology shares.


*****************************************************************

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.


Pinnacle Index
*****************************************************************
OEX                              Friday       Tues        Thurs
Benchmark                        (5/12)      (5/16)       (5/18)
*****************************************************************

Overhead Resistance (805-830)     6.65        9.86
Overhead Resistance (775-800)     2.06        2.40

OEX Close                       761.67      784.23

Underlying Support  (745-770)     1.46        1.76
Underlying Support  (715-740)     8.74      10.33

What the Pinnacle Index is telling us:
Based on the above statistics, direct overhead resistance and 
direct underlying support both remain light, while OTM support 
and resistance levels are extremely strong. Should this relief 
rally continue, the 800 level poses significant resistance in the 
short term. However, after expiration this week, we could be in 
for a more significant rally.



Put/Call Ratio 
*****************************************************************
                                Friday      Tues       Thurs
Strike/Contracts                (5/12)      (5/16)     (5/18)
*****************************************************************


CBOE Total P/C Ratio             .53        .63  
CBOE Equity P/C Ratio            .44        .52
OEX P/C Ratio                   1.38       1.10


Peak Open Interest (OEX)
*****************************************************************
                     Friday          Tues            Thurs
Strike/Contracts     (5/12)         (5/16)           (5/18)
*****************************************************************

Puts                700 /  7,010   760 / 10,554
Calls               800 / 10,855   800 / 10,319
Put/Call Ratio        0.65            1.02



Market Volatility Index (VIX)
*****************************************************************
                    Major
Date                Turning Point       VIX
*****************************************************************
October 97          Bottom              54.60      
July 20, 1998       Top                 16.88         
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15   
May 14, 1999        Top                 25.01 
July 16, 1999       Top                 18.13 
August  5, 1999     Bottom              32.12 
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09
April 14, 2000      Bottom?             39.33

May 16, 2000                            26.71



*******************
OPTION CLUBS UPDATE
*******************

SACRAMENTO OPTIONS CLUB UPDATE

I would like to make you aware of our club and meeting times.  
It may help other option investors in our area to come join 
our group.  The Sacramento Investment Network(SINE), as we 
call ourselves,  meets twice a month.  We have a breakfast 
meeting on the Sat. after options expiration Fri. and a mid-
month night.

We are dedicated to learning more about options trading and 
enjoying the comradeship of people who have a common cause.  We 
have a dedicated core group of people, who come from varied 
backgrounds.  

We can be contacted at:  


*****

BOSTON OPTIONS CLUB UPDATE

May 25th:

TOPIC:  Low Risk, High Profit Trading in A Volatile Market or 
Market Crash Atmosphere (Spreads for every occasion)

TIME:  6 - 10 pm

LOCATION:  Burlington Marriott, Route 128

CONTACT:  Tickets & Info --Kim Lemaire, 


--------------------------------------

June 10th:

Secrets of a Successful Professional Trader in a Volatile Market 
(Stocks and Options)

Crowne Plaza Hotel, Woburn, MA,  10 - 4 pm


---------------------------------

July 15th:  Roger Perry, Founder & Author, The Rightline Split 
Report:  Splits in a Crazy Market

Crowne Plaza Hotel, Woburn, MA


Seating is limited at all 3 events
CONTACT and TICKETS:  Kim Lemaire, BOIC or email at: 



************
WOMANS WORLD
************

Bullish Put Credit Spreads
By Mary Redmond

If you have a bullish outlook on a particular stock or index
sometimes you can make as much money by selling a put as you
can by buying a call.  The reason this is true is that very
volatile stocks will have expensive call and put options.  

When you buy a put you buy the right to sell 100 shares of the
underlying stock at the strike price of the put any time at 
or before expiration.  You pay a certain amount (the premium)
for this right.  When you sell a put you give someone else 
(the buyer) the right to "put" the stock to you at the strike
price any time at or before expiration.  You are obligated
to buy the stock in this situation.  

For example NT at 55.5 has a June 55 put priced at 4 1/8 to 
4 3/8.  If you sold the June 55 put at 4 1/8 then if NT were 
below 55 the Friday before the third Saturday in June you 
might be obligated to buy the stock at 55.  That would be ok
if you wanted to buy it anyway, because you could lower your
cost by 4 1/8 points.  The danger arises if the stock drops
catastrophically when you are obligated to buy it, in which
case you either sell at a loss or wait for it to go back up.  

Most brokerage firms do not allow naked option writing unless
you have at least a six figure account and option experience.
Most do not allow options trading in IRAs for a similar 
reason.  If you were to sell the put without having enough
money to buy the stock the brokerage firm would take the 
potential loss.  

A somewhat safer alternative is to use put credit spreads.  
This can give the opportunity to profit from overpriced put
options while limiting your potential loss.  In a spread,
you buy one option and sell the other.  If there is a credit
from the put spread then it is bullish.  

For example, with the NT at 55.5, the June 65 put is 10 5/8 
to 10 7/8.  If you thought the stock would be above 65 by 
the Friday before the third Saturday you could buy the June
55 put at 4 1/8 and sell the June 65 put at 10 5/8.  You 
would receive 6.5 points minus transaction fees.  This is 
your maximum potential profit. 

The maximum potential loss would be the difference between
the two strike prices (10 points) minus the credit of 6.5,
or 3.5.  This is because if the stock tanks to below 55 in
June you would probably be assigned and have to buy the 
stock at 65.  You could exersize your put and sell the stock
at 55, even if it were way below that level, thus keeping
your risk to a minimum.

Generally speaking, it is best to close spreads the Friday
before expiration if there is a question about whether the
options will be assigned.  This saves any surprises on 
Monday morning after expiration.

One advantage of put credit spreads is that put options may
move more quickly than call options if the stock rises.  In
other words, you might make a higher profit faster from a put
credit spread than a call debit spread.

The reason put options on volatile stocks are frequently very
expensive is that the market makers take offsetting trades
almost every time they fill an order.  For example, the NT
June 65 call is 1 to 1 1/4.  If you sell the put, the market
maker buys the put, and will most probably buy 100 NT and 
write the June 65 call.  The market maker's locked in profit
in this case is 6500 - 5500 + 10 5/8 - 1 1/4, or 6500 minus
6437.5. 

Many people in the media have been speculating about the 
impact of the Fed's rate hike decision on the Euro.  This
is a topic which will probably be watched very carefully, 
as continued rate hikes could impact the Euro and other 
currencies.  

It is surprising that the GDPs of most of the major European
countries have actually done well during the Euro's decline.
In fact, the economy of the entire Euro area increased by
approximately 4% in the second half of 1999.  However, despite
this growth, America's growth is still far stronger and money
has been flowing out of Europe into the US markets.

A weaker Euro may have actually benefitted some European 
industries, as it can increase the demand for European made 
goods in world markets.  However, a Euro which is too weak
against the dollar might throw their countries into a 
recession, which could back fire on the US, since many of our
companies export their products to Europe.  Some analysts 
think that the Euro may strengthen against the dollar if 
the perception is that the US economy is slowing.  The 
critical balance is one more factor to watch in the coming
months.

Contact Support



**************
TRADERS CORNER
**************

Mail Bag...Odds & Ends
By Austin Passamonte

Let me start by saying all the e-mail I receive is appreciated. 
Regretfully, it is impossible for direct response to each and
many times the same topic overlaps. Therefore, let's touch on
a few of them in this forum.

First of all, I am not personally affiliated with Pinnacle 
Capital Group in any way. Austin Tanner heads it, and I
understand the name confusion. Sure would be a lot easier if 
my mother had followed her first instinct and named me "Jeff".
Let's blame our identity mix up on my mom, shall we?

That being said, I have no control over the Skybox site,
contents or anything else affecting it. As an independent
trader just like you, I can only follow the action that
unfolds. I have no idea why certain trades may be taken or
missed depending on option pricing at the time of execution.

The Skybox for me at this time is an important guidance
tool for trading the OEX. Clearly there are plenty of different
questions many traders have that occur on a daily basis.
To be fair and honest, the very best way to familiarize & learn
the Skybox system is the same way I did; watch, observe and
study actions & results over a period of time. I'm certain
that's not the answer anyone wants to hear... we'd all like to
just plow in and have at it. Trouble is that can be a fast 
track to broke without an internal understanding behind our
action.

I will continue to address OEX & Skybox trading in my weekly
articles every Monday & Tuesday. All questions are kept and will
be included down the road. My absolute best advice until then is
the same I gave myself; be patient, watch and learn over time.
You'll surprise yourself how easily the puzzle pieces fit 
together once you allow the learning process to unfold.

I've been directional trading the OEX for awhile. This subjective 
trading allows me choice to pass up trades like put positions
triggered during a rising market such as Tuesday's. I'm inclined 
to simply watch the index as it rises into a bearish trigger when
all market signs are positive for a rally. Should the index stall 
near that point and break back down, I'll likely jump on the put 
play then. If the market rise through the bearish trigger AND 
trade through the bullish one in a rallying market I'll take the 
OEX call play if option prices are in line.

I can't say this is a better method of trading the OEX than
Skybox verbatim, it just happens to fit my lifestyle right
now. I will readily admit I've missed some profitable moves the 
Skybox captured. A trader following Skybox needs to watch the 
market every single minute from open to close, or a trading 
partnership can team up to monitor the action. Currently we're 
exploring the latter strategy for Skybox methodology and others
with great promise and less risk.

Also, the money-management system I prefer to use performs
best in directional trading. The strategy of buying
options with 75% of available balance adjusted after each 
trade is designed to protect traders from large drawdowns and
maximize big gains. It works completely different from 
conventional methods using 10%, 20% account balance or X-number
of specific option contract strategies. These are all fine but 
pale in comparison to leverage results the 75% multiplier offers.

A skilled, disciplined trader who can execute such a system 
has the opportunity to multiply an account to percentages
you'd never believe without testing it yourself. Although 
designed to keep pro Blackjack players alive through many small
losses to capitalize on few big wins, it works even better with 
few actual losses of course. I've been studying the use of 
trailing stops in my OEX trades with favorable early results. 
More on that in the future when sufficient data gives us 
something solid to discuss.

There still remain some OIN readers who cannot locate the Skybox
link on their website access. It should be on the front page in 
the left-hand column under the green "Strategies" header. If your
home page differs from this, please contact OIN for further details.

Sure is plenty of interest from international traders for the OEX 
as well. Seems to be quite a challenge finding brokers that can
handle trading needs outside the U.S. Sadly, I have no way of 
recommending any brokers foreign traders might use. It is beyond
my scope to do so.

Glad to see many OIN traders are avid book readers. I knew you 
were the cream of all option trading crops! I heartily endorse 
every book listed in the OIN Bookstore in the "Resource" section.
Each one will add to your base of knowledge many times the 
paltry retail prices, for sure.

On a philosophical note I was asked if option trading truly is
a zero-sum game as I'd written. The honest answer is, depends!
I would guess that many, even most options are written with
defensive strategies in mind and therefore serve their purpose
as the actual buyer profits from any appreciation. If writer 
and buyer are each happy with the results, it should be 
considered a win-win for both. 

However, the other side of this coin is the fact that unrealized
gains are actually true losses. If an option writer loses money
it's a loss. If the buyer enters late or sells too soon, it's a 
partial loss. Personally I'm thrilled just to take chunks of
profit from any option trade and subscribe to the win-win theory.

I'm pleased to learn that many new traders are in the midst of
paper-trading their way to a higher education of the game. Hey,
doctors, lawyers, CPA's, fighter pilots, police officers,
you name it - they all simulate their profession for years. Can
we take a page or two from those handbooks for professional 
success? I surely think so. It's no less noble to perfect your
skills through virtual trading than a doctor performing the first
few procedures on non-living subjects. Would you be comfortable
with even the finest young surgeon fresh out of school performing
their first procedure on you? Me neither! Why should we be 
compelled to jump in the financial arena with less classroom
training than the brightest medical student has endured?

Currently I'm researching a few trading strategies on paper and
real time as mentioned before. One tactic is the proper use of
trailing stops to eliminate some losses without choking out 
potential winning trades. I've managed to accomplish both so far,
and will report fine-tuned results in the future.

Debit spreads for the OEX & SPX and credit spreads for 
the SPX offer great risk/reward ratios for busy traders. The
choice to select plays that don't need baby-sitting like
straight calls & put plays on the OEX do is nice. I have
some interesting figures compileded over the past two weeks
to share next Monday & Tuesday. Having traded both straight 
plays and spreads, there are certainly times & places where 
spreads far outperform calls or puts.

Again thanks for the mail and your thoughts are always appreciated.
Looking forward to visiting with you again next week. Prosperous
trading to you all!  

Best wishes.
         


*************
DAILY RESULTS
*************

Index      Last     Mon     Tue    Week
Dow     10934.57  198.41  126.79  325.20
Nasdaq   3717.57   78.59  109.92  188.51
$OEX      784.23   14.86    7.70   22.56
$SPX     1466.04   31.40   13.68   45.08
$RUT      505.98    6.87    8.17   15.04
$TRAN    2865.27  -35.98   27.23   -8.75
$VIX       26.71   -2.50   -0.74   -3.24

Calls               Mon     Tue    Week

RMBS      207.00   12.44    5.63   18.06  Moving up on good volume
AFFX      155.13   -0.28   15.19   14.91  Surge of buyers today
AMCC      113.50    1.69   10.50   12.19  Big move ahead of the Fed
SEBL      140.81    8.88    2.94   11.81  Picture perfect breakout
ALTR       92.63    3.32    5.25    8.56  New, looking for $100
JDSU       94.25    3.88    4.38    8.25  Trading with the Nasdaq
PLXS       89.25    7.25    1.00    8.25  Bulls eye play!!!
MEDI      172.03   -1.88    9.41    7.53  Splitting on Thursday
SEPR      109.75    0.75    6.75    7.50  Multiple sector upgrades
DNA       135.00    2.38    3.63    6.00  Has the DNA of a bull
KANA       44.38    2.78    2.59    5.38  Dropped, time's up
CDWC      123.00    1.25    3.50    4.75  Volume is staying strong
WLA       120.63    2.13    1.31    3.44  Merger with PFE pending
FLEX       56.25    4.50   -1.50    3.00  Held analyst meeting today
BVSN       48.38   -0.25    2.88    2.63  Still trying to break $50
AMGN       64.69    1.81    0.50    2.31  Fighting for billions
FAST       71.13    1.44    0.31    1.75  A major expansion agreement
MSFT       69.50    0.56    0.13    0.69  Waiting for a breakout


Puts

OPTV       58.75   -2.00   -3.88   -5.88  New, down on big volume
SBL        46.06    0.31    0.69    1.00  Running into resistance
CMRC       49.25    2.25    2.63    4.88  Caution flags are raising
FDRY       73.13   -0.69    5.69    5.00  Not convincing enough yet
AKAM       76.06    4.25    1.31    5.56  Gapped up, but drifting 
PLCM       64.06   -1.38    7.06    5.69  Dropped, no play here
NXTL      108.69    7.63    8.19   15.81  Dropped, none here either


PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time. 
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

KANA $44.38 +2.59 (+5.38) Today the writing was on the wall and 
we're not ignoring it.  On one side of the coin, KANA opened 
strong and broke out of its tight consolidation channel of $38 
and $42, but it failed miserably to crack the $45 mark.  There 
was a glimmer of when it peaked at $47, yet it quickly fell 
victim to a high-volume sell-off following the rate hike 
announcement.  So with no conclusive direction establishing 
itself this week and the 10-dma violations, we're taking KANA 
off our call list.  For the readers who've been following the 
news, the company announced yesterday that M.A.N. Truck & Bus UK 
Limited has selected Kana Service to handle requests for its 
in-house roadside assistance program


PUTS:
*****

NXTL $108.69 +8.19 (+15.81) Sometimes you're the hero and
sometimes the goat.  NXTL dropped below $94 early on Monday,
and then did an about-face, heading higher for the rest of
the day.  The recovery continued today, and NXTL moved strongly
above the 200-dma, and then the $104 resistance level.  The
strong volume over the past 2 days combined with today's close
near the high of the day leaves us no choice but to let NXTL
go.

PLCM $64.06 +7.06 (+5.69) Yesterday PLCM gave us more of the 
descending momentum we've seen since May 3rd.  After sinking to 
a daily low of $52, the stock established a new line of 
resistance at $55 for the majority of the day.  The last minute 
spike to $57.81 was however, unnerving.  If you had an itchy 
trigger finger and jumped in early, your stops should have 
however protected the bulk of your capital before PLCM broke 
through the 10-dma.  Honestly, the timing couldn't have been 
worse.  First there was the upgrade from Stifel Nicolaus whose 
analyst upped PLCM to a Strong Buy from a Buy.  And then with 
the broad rally today, PLCM was an easy target for bargain 
hunters.  Without any further adieu, PLCM is a definite drop 
tonight.  




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DISCLAIMER
**********
This newsletter is a publication dedicated to the education 
of options traders. The newsletter is an information service 
only. The information provided herein is not to be construed 
as an offer to buy or sell securities of any kind. The 
newsletter picks are not to be considered a recommendation 
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in 
options. It is possible at this or some subsequent date, the 
editor and staff of The Option Investor Newsletter may own, 
buy or sell securities presented. All investors should consult 
a qualified professional before trading in any security. The 
information provided has been obtained from sources deemed 
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely 
information to its subscribers but cannot guarantee specific 
delivery times due to factors beyond our control.

The Option Investor Newsletter              Tuesday 5-16-2000
Copyright 2000, All rights reserved.                   2 of 2
Redistribution in any form strictly prohibited.


********************
PLAY UPDATES - CALLS
********************

SEPR $109.75 +6.75 (+7.50) The Biotech sector surged higher
Tuesday.  The sector benefited from a slew of positive analyst
remarks.  Several brokerages initiated coverage and set lofty
price targets in the sector.  For instance, SG Cowen initiated
coverage on MLNM, GZMO, and GZTC with Strong Buy ratings.
Additionally, Needham & Co initiated coverage on GILD with a 
Buy and set a $209 price target on MEDI.  The positive analyst
comments pushed SEPR past resistance at $104 with a gap higher
Tuesday morning.  The stock is sailing higher using its 10-dma as
support.  Watch for a bounce off the 10-day as a possible entry
point.  After clearing resistance at $104, SEPR edged up to its
next resistance at $110.  Watch for a move above that level as
a possible entry point.  Volume returned to SEPR late Tuesday as
buyers scrambled to purchase the stock, watch for the buying to
carry over into Wednesday and push SEPR past resistance.

FAST $71.13 +0.31 (+1.75) FAST announced a major expansion
agreement with OrderZone.com, a leading B2B Internet marketplace,
on Monday.  The agreement will extend FAST's reach into the small
business markets.  The commitment will further establish FAST's
online presence while maintaining its strong level of customer
service.  Also on Monday, analysts at Robert W Baird downgraded
FAST from a Strong Buy to Market Outperform.  Analysts at the
brokerage firm downgraded the stock because it had reached their
price target.  Traders quickly discounted the downgrade Monday
and sent FAST higher.  The stock gapped down $0.69 after the
downgrade but rebounded to a new 52-week high late Monday.  The
momentum carried over into Tuesday's trading as FAST traced yet
another 52-week high at $73.31.  Look for FAST to continue its
upward ascent, as it rolls to new highs.  Trading activity has
remained healthy while FAST has moved higher, look for a bounce
off the 5-dma and confirm any rally with heavy volume.

FLEX $56.25 -1.50 (+3.00) FLEX held their analyst meeting on
Tuesday.  Executives didn't make any major announcements, but
told analysts that business remains healthy and the company is
comfortable with earnings forecasts.  Several analysts made
positive remarks after the meeting.  Prudential Securities
reiterated their Strong Buy rating on the stock and Credit Suisse
First Boston reiterated its Buy rating.  Despite the positive
comments FLEX stumbled in Tuesday's trading.  The stock rallied
sharply Monday, ahead of the analyst meeting.  It appears
Tuesday's decline is nothing more than profit taking noting the
light volume and considering the strong rebound from last week.
FLEX could benefit in the coming days from the strong earnings
report from fellow electronics component maker Hewlett-Packard
(HWP).  From here, watch for a quick rebound form current levels
for an entry point or wait for FLEX to clear resistance at $60.

AFFX $155.13 +15.19 (+14.91) As investors sat on their hands in
anticipation of today's FOMC meeting, AFFX gave us one more
entry point on Monday.  With an early morning drop to the $135
support level, aggressive investors who jumped on board ahead
of today's economic information were amply rewarded as AFFX
opened sharply higher.  The rally faded a bit as the time of
the interest rate announcement approached and then dropped with
the broad markets in reaction to the announcement.  Then, with
a surge of buying volume, the stock ran up to the 50-dma
(currently $154.31), and managed to push through and close above
it for the first time in the past 2 months.  Volume did pick up
today, but is still light.  Even though we had a nice gain
today, it came on only two-thirds of the average daily volume.
AFFX is now sitting just below the $159 resistance level and we
need to see the conviction of more volume in order to push
higher.  New entries can be considered on a strong push through
resistance or on another bounce from support at $147.

CDWC $123 +3.50 (+4.75) After an impressive run like we have
seen from CDWC over the past month, it appears investors may
be ready for a bit of a rest.  Volume is remaining strong, and
if the action during the recent climb is any indication, CDWC
could be consolidating in advance of the next leg up.  After
the usual excitement surrounding the open today, trading 
became almost nonexistent for the two hours leading up to 
the announcement on interest rates.  We saw a hint of a rally
beginning in the last 15 minutes of trading today, but we 
need to see follow through tomorrow.  Remember that this is 
a momentum play based on the strength of the company's last
earnings announcement, and excitement over a potential split.
Look for a possible announcement after the May 24th Annual
Shareholder meeting, where there will be a vote on increasing
the number of outstanding shares.  The 5-dma (currently $117.88)
is continuing to provide support, and if the upward move remains
intact, we would consider intraday dips as a viable entry
strategy.  

MEDI $172.03 +9.41 (+7.53) After the announcement on Thursday
that MEDI would be added to the S&P 500, our play really took
off.  After the first wave of excitement subsided, MEDI quickly
began marching higher, and today gained over $9 on volume in
excess of the ADV.  In the process, buyers have pushed the stock
up through the 10, 30, and 100-day moving averages.  Today's
close puts MEDI above the $170 resistance level and puts the
stock within striking distance of the $175-180 congestion zone.
If $170 fails to hold, look for support in the vicinity of
$165; consider bounces near this level as good entry points so
long as volume remains healthy.  Now that the interest rate
uncertainty has been removed, investors will be focused on the
pending Shareholder Meeting on May 18th.  There will be a vote
on increasing the outstanding shares, and if approved, the
company will proceed with its announced 3-for-1 split on the
same day.  Consistent with our policy of not holding over
splits, we will be dropping MEDI on Thursday and we recommend
closing any open positions before Thursday's close.

BVSN $48.38 +2.88 (+2.63) Well, the buzz is definitely back 
in the bee - B2B, that is - following last week's H&Q tech 
conference and today's predictable 0.5% rate hike in interest 
rate by the Fed.  We noted last night in the Wrap that leading 
B2B infrastructure companies would likely be one of the first 
to spring forward after the Fed announcement.  BVSN didn't 
disappoint as volume ratcheted up to over 10.4 mln shares - 
that's 20% above the ADV.  While we didn't get the breakout of 
the wedge we were looking for, BVSN is backed up against $50 
resistance.  With today's low only dipping down to $46, the 
convergence spring is getting highly compressed, and we would 
expect a breakout any day now.  Again, volume is the key and 
today's surge looks promising.  Our best suggestion is to buy 
the next intraday dip or wait for the clean break over $50.50 
with volume.  Not that the company's announcement of hosting 
an International Users' Forum is any price-moving news item 
(more like a self-congratulatory love-fest from the looks of 
the news release), but there could be price moving alliances 
or collaborations announced over the next few days as a result.  

MSFT $69.50 +0.13 (+0.69) Looks like we picked a good bottom on 
MSFT, but the stock has to move up from here in order for us to 
make a profit.  We have to admit though with Bill Gates spotting 
TV commercials and Steve Ballmer penning an essay in Newsweek, 
the public opinion campaign is beginning to work in MSFT's favor.  
It doesn't hurt either that MSFT will deliver an "Outlook patch" 
next week to slow down Love Bug-type hacks.  But in the short-
term, we'd just rather see investors scooping up the issue 
again.  Based on 24 mln shares traded today (ADV is 44 mln), 
and following a much awaited Fed rate hike in which the markets 
were "suppose" to rally, volume is not there to push MSFT higher.  
$65 is rock solid support, followed by $68, and $69.50 intraday.  
Intraday resistance isn't far off at $70.50, then $72 with a 
bigger hurdle at $74.  Talk about rangebound!  MSFT is destined 
to flat line in the absence of any news to push it.  It's tough to 
day trade this movement.  You can consider dips under $67 to be 
buyable; however, we encourage waiting for a move over $72 with 
renewed volume.  "Buy and hope" at this level isn't a profitable 
strategy.

SEBL $140.81 +2.94 (+11.81) Breakout!!!  Pull up a chart and look 
at the action starting around 2:00 ET yesterday.  A big move 
above $130 with huge volume to back it up made this a textbook 
breakout.  It moved up to $140 where it held flat until the Fed 
announcement.  Despite a re-test to $134 immediately following 
today's Fed rate hike announcement, the rebound was swift 
and actually pushed SEBL through $140, a previous level of 
resistance.  Despite low overall daily volume, this is a 
technically bullish pattern.  Why?  Because not only did the move 
occur at a historical level of resistance, it also occurred at 
the 50-dma (then about $127) and held.  When you have a technical 
wedge, historical support, and a moving average at roughly the 
same place, volume is a slightly less important factor in the 
equation for a breakout.  Every technical trader in world was 
probably all over this one.  We look for the technical trend to 
continue with the next resistance level at the late March (just 
before the first selloff) high of $147.  A target shooting level 
of support is harder to find.  But today's intraday dip into the 
$134-$135 might make a good target.

JDSU $94.25 +4.25 (+8.25) It took only one hour to fall to the
$83 area Monday morning.  After that the buyers stepped in
and began loading up on shares of JDSU.  As we said this weekend
a successful retest of the $80 to $83 area could provide a
suitable entry point for a new play.  This morning shares of the
fiber-optics company took off right out of the gate and didn't
stop until reaching $96.  On the Fed announcement JDSU pulled back
along with the broader market to $90 and bounced into the close.
No company specific news the first two days of the new week,
however it does appear as though JDSU and many of the past
favorites at the Nasdaq are in favor again.  The volume the past
two days indicates the buyers may be back as well, at least
temporarily.  If the bears do try to have their way with JDSU,
look for support to enter near $93, $90 or the $88 level.  
If you missed the bounce on Monday, don't worry.  Like we've 
said before, this one has produced many opportunities for 
traders in the past and we expect more of the same this time.

RMBS $207.00 +5.63 (+18.06) As RMBS fell to support near $178
early Monday morning, traders began to click on the buy button
in preparation for the Fed rally.  RMBS and many of the issues
in the $SOX began to bounce in what would prove to be a nice
start for our new play.  RMBS has provided traders with move
of about 10% in the past two sessions.  The volume was better
today with over 4.9 million shares traded.  No news in particular,
just an improved sentiment for the RMBS, the industry and the
tech stocks as a whole.  How do we proceed with our play?  Well
depending on the sentiment in the broad markets, we believe RMBS
will continue higher.  With that said, we could see a pullback
to intraday support levels before the next move up.  Intraday 
charts show support at $195.  RMBS formed a nice base today
near $210, prior to the Fed announcement.  A move back through 
that level accompanied by strong volume and we could see RMBS 
continue its flight.  If it needs a day or two for re-fueling 
then be patient, and look for bounces off support to enter this 
play.

AMGN $64.69 +0.50 (+2.31) Here's another new play that's got off
to a nice start for the week.  Even as lawyers for the company
headed back to court on Monday, the bulls charged ahead buying
shares of AMGN.  Lawyers for the biotech firm and Transkaryotic
Therapies began battling in a District court yesterday at the
opening of a patent trial whose outcome could have a dramatic
impact on the whole industry.  Why all the fuss?  The suit could
affect billions of dollars of sales of Amgen's best selling 
product, Epogen.  TKT is trying to convince the judge that AMGN's
patents are two broad.  What was broad the past two days, was the
number of buyers seen in the biotech company.  Although less than
its 3-month average, the volume has picked up the last few days, 
as AMGN has continued to climb higher.  Technically, support
is now built up at $63.50 and $62.50.  As we said this weekend,
AMGN is a stock that trends very nicely, once the trend has been
established.  Remember it normally doesn't move fast.  Profit
taking should be considered buying opportunities once a bounce
is established as well.

DNA $135.00 +3.63 (+6.00) Just what every new drug or biotech
play needs, is a study to come out saying that the clot-busting
drugs that a routinely given after heart attacks don't help, but
could actually harm the most elderly patients.  While this kind 
of news may not have the same kind of effect as if the company
warned about poor earnings, it was encouraging to see investors
not shy away from the company's stock.  Perhaps investors that
follow and trade the company regularly are used to Genentech
being hammered with negative press.  After all, it was just over
a week ago Genentech warned of allergic reactions, linked to
their drug Herceptin.  The volume on Monday was extremely light
while today's 2.7% gain showed better numbers.  Traders began
to pull some money off the table ahead of the Fed announcement,
but return to nibble on shares of DNA going into the closing
bell.  Intraday support is found now at $132, $129 and near the
10-dma at $126.83.  The near-term trend is higher, and we would
look for chances to buy calls, however keep your stops in place.

PLXS $89.25 +1.00 (+8.25) Bulls Eye!  PLXS provided superb 
entries Monday morning with dips to near-term support at $75 and 
$78.  Then all it could do was go up, up, up.  The bullish climb 
was backed by a strong show of volume indicating PLXS was indeed 
experiencing a solid momentum run.  Today PLXS not only 
shattered the next level of resistance at the $90 mark, but it 
also set another new 52-week high.  The record now stands at 
$91.50.  Near-term support is developing at $85 and $86, which 
is just above the 5-dma ($83).  Look for entry points on dips to 
these levels, assuming PLXS is still on the climb.  If there's a 
pullback in the markets and PLXS follows suit or is a victim of 
some profit taking, then watch for bounces off old resistance at 
$80.  

WLA $120.63 +1.31 (+3.38) Investors are getting excited about 
the upcoming merger of WLA and Pfizer, which is expected to be 
approved on Monday and completed by Wednesday, May 24th.  Near-
term support rose this week to $118 from $115, which is a good 
sign.  Recall WLA still must challenge its all-time high at 
$126.25 (set last Monday).  Another positive endorsement that 
WLA's momentum is again on the rise was its move through the 
5 and 10 DMAs, now at $118.41 and $119.42 respectively. 
Additionally, now that the Fed meeting is behind us, WLA 
shouldn't face too much strife in the short-term.  Use the 
intraday volatility to get your foot in the door. 

AMCC $113.50 +10.50 (+12.19) AMCC played right into our hands!  
On Monday, the stock took a dip below old resistance of $100 and 
provided a multitude of entry opportunities.  Then analyst Cody 
Acree of Frost Securities came forward and upgraded AMCC to a 
Strong Buy from Buy.  The promising finish at $103 yesterday 
foreshadowed the stock's $10.50, or 7.7% surge in today's 
session.  The play's momentum effectively got a big boost as the 
telecom stocks rallied ahead of the key Fed meeting.  The next 
goal is for AMCC to penetrate $120.  Today it gave it a good 
shot, but got stopped out at $116.75.  Market permitting, we're 
anticipating AMCC can sustain its momentum run in the short-
term.  As a reminder to new readers, AMCC is a fast mover so 
consider this play VOLATILE and HIGH-RISK.



*******************
PLAY UPDATES - PUTS
*******************

SBL $46.06 +0.69 (+1.00) SBL rallied in the past two days with
help from several electronics makers.  Computer switches maker
BRCD rallied nearly 10% after reporting strong earnings and
component maker LXK gained over 6% in Tuesday's trading.  While
the tech sector enjoyed substantial gains, SBL lagged, and gained
a mere 1%.  Although SBL has rebounded, the gains have come on
extremely light volume.  Tuesday's slight rally was on half of
the stock's ADV.  Worth noting, during intra-day action, the
volume is much heavier during pullbacks.  Suggesting institutions
continue to unload the stock.  Over the past two days, SBL has
ran into resistance at $47 several times.  Watch for SBL to bump
into resistance, and look for the institutions to return and sell
the stock lower.  If you want a more conservative entry point,
wait for SBL to fall through support at $44.  Confirm any decline
with above heavy volume as a sign the professionals are selling.

CMRC $49.25 +2.63 (+4.88) Caution flags are going up on CMRC as
it has bounced almost 20% from the low on Monday.  Additionally,
CMRC saw above average volume accompanying today's move.  So why
are we keeping it?  The simple answer is resistance and sector
sentiment.  The 10-dma (currently $49.81) sits right above
today's close and is backed up by the 30-dma at $52.31.  The B2B
sector continues to be under pressure due to concerns about what
will be the most viable revenue model.  This pressure can be
seen in the charts of B2B stocks like CMRC.  Many of these
stocks are running into resistance at the 10-dma, while the
Internet sector and the NASDAQ have broken solidly through this
level.  Look to initiate new positions as CMRC rolls over near
resistance, preferably confirmed by increasing volume.  Keep an
eye on volume as the price approaches support (currently at $44
and $42); if the volume dries up, it will be a good indication
that the selling may be over.

FDRY $73.13 +5.69 (+5.00) The new week, has brought new buyers
back to Foundry Networks.  The question now becomes whether or
not they are the long-term investors or short-term players.  As
we mentioned in previous updates, FDRY was getting so oversold,
it really was due for a bounce.  FDRY is now approaching its
10-dma at $78.76 which could be the failure point for any further
rally.  If the buying seen today has been those with a longer
time frame in mind then FDRY may have out in a bottom.  If not,
then we are due for return trip south.  On Monday FDRY announced
that shipments of its NetIron400 and NetIron800 Internet backbone
routers commence shipping on May 1.  A company spokesman said
"the explosive growth and use of the Internet is creating an
enormous desire for ultra high performance, reliable and scalable
data communications devices.  Great comments, and we couldn't
agree more, but right now what the company needs are more buyers
if they expect to see the price of their stock turn around.

AKAM $76.06 +1.31 (+5.56) It's looking good.  AKAM didn't give 
us a repeat of its show-stopping performance of a couple weeks 
ago.  The stock's reaction, or lack of it today, gives us a good 
indication that AKAM isn't going to throw pie in our face.  
While many of the Internets were in rally mode today, AKAM 
slammed into fierce opposition at the $80 level.  The icing on 
the cake was the late day downdraft, which distinctly pulled 
it further away from the 10-dma ($82.77) and placed it in the 
vicinity of the descending 5-dma ($74.38).  This further 
demonstrated that AKAM can't hold any gains.  The cautious 
traders will want to wait for AKAM to slide under this latter 
technical before opening new positions.  It'd be even more 
conservative for the stock to move to the underside of $72, 
like on Monday and Friday.  In the news yesterday Akamai and 
CCBN.com, the leading provider of online investor relations 
services to publicly traded corporations, announced today a 
one-year extension to their existing streaming media agreement, 
which signifies both companies' belief in Webcast services.  
Also the company announced a partnership with Microsoft.  
Together they'll sponsor a series of nationwide "streaming 
media" seminars to educate companies on how digital media 
technology is changing the face of business.



**************
NEW CALL PLAYS 
**************

ALTR - Altera Corp $92.63 +5.25 (+8.56 this week)

Altera designs, manufactures, and markets programmable logic 
devices (PLDs).  These user-friendly chips are gaining popularity 
over custom logic chips because it allows customers to program 
them themselves using software provided by Altera.  As a result, 
it cuts development costs and time to market.  The company 
caters to a wide range of markets including telecommunications 
and data communications.

Is it strictly a recovery in our midst or the possibility of a 
split announcement that is enticing buyers?  Yesterday ALTR came 
off its bottom at $80 and rallied in late afternoon trading.  
It looked promising, but still it got stopped out before it 
could challenge strong resistance at $90.  Now today with that 
resistance clearly an early morning memory and ALTR instead 
using that $90 level as a bouncing platform, it appears the 
stock will attempt a charge for $100.  Plus there is no doubt 
ALTR is a split candidate.  For months the stock has been 
trading above historical split-levels of $70.  And on Wednesday, 
there was a vote to increase the number of authorized shares 
from 400 mln to 700 mln at the company's Annual Meeting of 
Shareholders.  A split could be announced at any time.  Look 
for positive moves off the current share price and an increase 
in trading volume to signal another breakout.  Entries off 
the converged 10-dma ($90.74) and 30-dma ($90.50) present a 
reasonable entrance if ALTR can hold these higher share prices.

Earlier on May 8th, Altera announced it acquired privately 
held, Right Track CAD Corporation, an independent developer of 
architectural and computer aided design (CAD) tools for advanced 
programmable logic devices (PLDs).  

BUY CALL JUN- 85*LTQ-FQ OI= 550 at $13.38 SL=10.00
BUY CALL JUN- 90 LTQ-FR OI= 358 at $10.25 SL= 7.25
BUY CALL JUN- 95 LTQ-FS OI= 399 at $ 7.88 SL= 5.75
BUY CALL JUN-100 LTQ-FT OI=2090 at $ 6.25 SL= 4.25

Picked on May 16th at    $92.63    P/E = 77
Change since picked       +0.00    52-week high=$108.00
Analysts Ratings     14-9-5-0-0    52-week low =$ 30.00
Last earnings 03/00   est= 0.34    actual= 0.36
Next earnings 07-17   est= 0.42    versus= 0.25
Average Daily Volume = 4.36 mln
/charts/charts.asp?symbol=ALTR



*************
NEW PUT PLAYS 
*************

OPTV - OpenTV Corp. $58.75 -3.88 (-5.88 this week)

OpenTV develops software for interactive digital television
systems.  With its software, one can use a remote control to surf
TV channels, access interactive services (such as shopping,
banking, and e-mail), and even control camera angles and instant
replays during sporting events.  The company offers integration,
application development, and other services.  Corporate investors
include Sun Microsystems, America Online, News Corp, Motorola,
and Time Warner.  OpenTV plans to buy Internet software pioneer
Spyglass (SPYG).

Kids want their MTV, investors don't want OPTV.  The stock has
fallen from its lofty high of $245 over concerns of the pending
SPYG acquisition.  Late in March, OPTV announced it would acquire
SPYG for an 80% premium.  Since the announcement, investors have
evacuated OPTV faster than a burning building.  Analysts believe
OPTV greatly overpaid for SPYG.  Additionally, investors are
questioning the viability of SPYG and what value, if any, the
company will add to OPTV.  In fact, many shareholders are calling
for a vote against the merger.  As if the concerns over the
merger weren't enough, OPTV will face the unlocking of stock from
their IPO.  The lock-up period expires later this week and will
bring a supply of stock to a market that has little demand for
OPTV right now.  In light of the concerns revolving around the
merger and the expiration of the lock-up period, we're looking
for OPTV to continue to slide.  OPTV enjoyed a dead-cat bounce in
early April after falling from grace, volume has since swelled
as the selling has resumed.  The stock has subsequently formed a
head-and-shoulders top, and with Tuesday's decline, broke through
the right shoulder.  OPTV is now hovering precariously above its
last major support level at $58.  A move below support might
position OPTV to retest its 52-week low of $41.25.  Watch for 
a sharp move below $58 in the coming days for a possible entry
point.  OPTV does have one minor support level at $55.  A
conservative trader may consider a move below $55 as a possible
entry into the play.

BUY PUT JUN-60*OUZ-RL OI=31 at $10.88 SL=8.25 
BUY PUT JUN-55 OUZ-RK OI=20 at $ 8.13 SL=5.75 

Average Daily Volume = 534 K
/charts/charts.asp?symbol=OPTV



**********************
PLAY OF THE DAY - CALL
**********************

MEDI - MedImmune Inc. $172.03 +9.41 (+7.53 this week)

MedImmune is a biotech company focused on developing and
marketing products that address medical needs in areas such as
infectious disease, autoimmune disorders, cancer, and
transplantation medicine.  The company has six products on the
market and a diverse product development portfolio.  The
products currently on the market include Synagis, CytoGam,
RespiGam, Ethyol, Neutrexin, and Hexalen.

Most Recent Write-Up

After the announcement on Thursday that MEDI would be added to 
the S&P 500, our play really took off.  After the first wave of 
excitement subsided, MEDI quickly began marching higher, and 
today gained over $9 on volume in excess of the ADV.  In the 
process, buyers have pushed the stock up through the 10, 30, 
and 100-day moving averages.  Today's close puts MEDI above the 
$170 resistance level and puts the stock within striking distance 
of the $175-180 congestion zone.  If $170 fails to hold, look 
for support in the vicinity of $165; consider bounces near this 
level as good entry points so long as volume remains healthy.  
Now that the interest rate uncertainty has been removed, investors 
will be focused on the pending Shareholder Meeting on May 18th.  
There will be a vote on increasing the outstanding shares, and 
if approved, the company will proceed with its announced 3-for-1 
split on the same day.  Consistent with our policy of not holding 
over splits, we will be dropping MEDI on Thursday and we 
recommend closing any open positions before Thursday's close.

Comments

MedImmune broke out today after the interest rate announcement 
as strong volume pushed the stock above $170.  This resistance 
level gave way because investors are buying ahead of the share
holders meeting on Thursday to enact the split.  The split 
is the same day which means Wednesday is the final day for 
investors to pile in to catch the split.  A bounce off $170 
would make the best entry point.

BUY CALL JUN-165*MEQ-FM OI=1419 at $20.63 SL=15.75
BUY CALL JUN-170 MEU-FN OI= 463 at $18.50 SL=13.00
BUY CALL JUN-175 MEU-FO OI= 286 at $15.50 SL=11.00
BUY CALL JUN-180 MEU-FP OI= 205 at $13.38 SL= 9.75
BUY CALL JUN-185 MEU-FQ OI= 268 at $11.25 SL= 8.25

Picked on May 7th at    $170.25     P/E = 108
Change since picked       +1.78     52-week high=$228.75
Analysts Ratings     12-1-0-0-0     52-week low =$ 55.00
Last earnings 04/00   est= 0.75     actual= 0.80
Next earnings 07-19   est=-0.07     versus=-0.19
Average Daily Volume = 1.52 mln
/charts/charts.asp?symbol=MEDI



************************
COMBOS/SPREADS/STRADDLES
************************

A Banner Day Indeed!

Monday, May 15

Equity markets ended higher amid optimism the Federal Reserve's
upcoming rate adjustment will be the last one for some time.  The
Dow rallied 198 points to 10,807 and the Nasdaq closed 78 points
higher at 3607.  The S&P 500 Index added 31 points to end at 1452.
Volume on the NYSE remained very light with 853 million exchanged.
Advances beat declines 1,761 to 1,144.  Nasdaq trading volume was
also thin with 1.15 billion shares changing hands.  Advances beat
declines 2,154 to 1,885.  The 30-year Treasury was last up 22/32,
bid at 101 8/32, pushing its yield down to 6.15%.
 

Sunday's new plays (positions/opening prices/strategy):

Nabisco      NGH    SEP15C/JUN20C   $4.50   debit   diagonal
Ashland      ASH    JUN30C/MAY35C   $4.75   debit   diagonal
Ashland      ASH    JUN30C/JUN35C   $3.50   debit   bull-call
Best Foods   BFO    JUN50P/JUN55P   $0.56   credit  bull-put
Cienna       CIEN   JUN85P/JUN90P   $0.62   credit  bull-put

Nabisco surged at the open on reports that Philip Morris (MO) and
others have entered the bidding for its food unit.  Our original
play (in May) was unavailable but with the new option interest,
a short position in June offered a favorable initial cost basis.
The opening debit in the Ashland diagonal spread was slightly
higher than our target but we decided to take the position as
it has no upside risk an offers a discounted entry into the bull
call spread.  We will also track the prices of the debit spread
for comparison.  Best Foods and Cienna both provided reasonable
credits for the initial entry prices.


Portfolio plays:

Stocks rallied across the board Monday on the eve of a key FOMC
meeting as investors bet the central bank would raise interest
rates aggressively to fend off inflation and reduce the need for
future increases.  Tuesday will also mark the release of April's
Consumer Price Index, which should be the last piece of inflation
data the committee reviews before deciding how much to increase
interest rates.  With a number of fund managers on the sidelines,
trading volume remained light but both indices ended near session
highs.  The Dow rose as traders vied for old economy stocks that
have taken a drubbing in recent weeks and the Nasdaq staged an
impressive rally amid gains in computer software and Internet
issues.  Large-cap technology names were the top performers and
JDS Uniphase (JDSU), Sun Microsystems (SUNW) and Intel (INTC) led
the rally.  In the broad market, tobacco, insurance and investment
management stocks advanced while Air freight, waste management and
textiles moved lower.

Our portfolio benefited from the strong move in technology issues
and the majority of plays in that group are now profitable.  The
leader in today's session was Applied Materials (AMAT) with a $5
rally to end near $86.  Our bullish credit spread offers maximum
return above $80.  General Electric (GE) and Warner Lambert (WLA)
led the big-cap safety issues and Medtronics (MDT) led the mid-cap
group rising $2.50 to $56.50.  The surprise mover was Excite@home
(ATHM) with a $2 rally to end at a recent high near $22.  Our new
debit spread is almost $5 in-the-money after just one week in play.
Stocks in the Oil industry continue to perform very well and many
of our positions have far exceeded original expectations.  Smith
International (SII), Texaco (TX), Tuboscope (TBI) and Unocal (UCL)
were the big movers.  The calendar spreads portfolio has been one
of our favorites in recent weeks and today the success continued.
Dean Foods (DF) and Magna International (MGA) both moved higher,
bringing their respective positions to maximum profit, well above
the target returns.


Tuesday, May 15

The market rallied Tuesday as investors applauded the hike in
interest rates by the Federal Reserve.  The Dow finished up 126
points at 10,934 and the Nasdaq was up 109 points at 3717.  The
S&P 500 Index added 13 points to close at 1466.  Volume on the
NYSE hit 955 million shares with advances beating declines 1,675
to 1,269.  Trading volume on the Nasdaq was active with 1.49
billion shares exchanged.  Technology advances beat declines
2,337 to 1,750.  The 30-year Treasury was last up 18/32, bid
at 101 27/32, pushing its yield down to 6.11%.

     
Portfolio plays:

Stocks finished higher today after the FOMC raised interest rates
by one-half point, the biggest increase in five years.  The Fed
said it was increasing the federal funds rate, the interest that
banks charge each other on overnight loans to offset a rapidly
growing economy that could foster inflationary imbalances and
possibly undermine its future performance.  Most analysts had
expected today's 50-basis point hike, demonstrating that the Fed
was prepared to move more aggressively to dampen the current
economic pace.  The record-breaking growth has shown little sign
of diminishing but a report by the Labor Department may be seen
as favorable news.  For the first time in almost a year, the CPI
or Consumer Price Index was unchanged in April, matching many
analysts' expectations.  Now the question is how the increase in
interest rates will affect the booming economy, which has grown
at a sizzling rate, well above 5% in the first three months of
2000.

It was indeed a "Super Tuesday" for the Spreads/Combos portfolio
with a number of issues rallying in expectation of the interest
rate announcement.  Adobe Systems (ADBE) with the big winner with
a $14 rally to a recent high near $123.  Ciena (CIEN) was another
well-known issue on the leader-board, up $11.25 to close at $152.
Applied Materials (AMAT), Computer Associates (CA), Cypress (CY)
and Teradyne (TER) rounded out the top issues in the technology
group.  Safety stocks performed well and the Major Drug sector
produced a number of winners.  Sepracor (SEPR) led the group with
a $6.75 rally but Abgenix (ABGX), Johnson & Johnson (JNJ), and
Warner Lambert (WLA) were not far behind.  A number of small-cap
positions benefited from the bullish activity and Oxford Health
(OXHP) was the best performer in that category.  Andrew (ADRW),
Cabletron (CS), Cypress (CY) and Network Associates (NETA) also
moved higher on today's upward momentum.

With only three days to go, it appears that May will be a banner
month for the portfolio with roughly 90% of the current plays
providing a positive return.  There are a few issues that require
attention but without a major correction, the Combos section will
will finish the expiration period on a positive note.  There are
a few adjustments that need to be made in the long-term positions
but for the majority of plays, we will simply wait for Friday's
closing bell.  Let's hope there are no surprises...


Questions & comments on spreads/combos to Click here to email Ray Cummins

******************************************************************
                         - NEW PLAYS -
******************************************************************

ALL - Allstate  $26.00   *** Up On Speculation! ***

The Allstate Corporation is engaged in the property-liability
insurance and life insurance and savings businesses.  Allstate's
Property-Liability insurance business consists of the PP&C and
Discontinued Lines and Coverages segments.  PP&C writes private
passenger auto and homeowners insurance policies in 50 states,
the District of Columbia, Puerto Rico, Canada and Germany.
Discontinued Lines and Coverages consists of business no longer
written by the company, including results from environmental,
asbestos and mass tort losses, mortgage pool insurance business
and other commercial insurance business in run-off, as well as
the historical results of the commercial/reinsurance businesses 
sold in previous years.  Life insurance products include whole
life and term life insurance as well as universal life, variable
life and other life products. Savings products include deferred
annuities and immediate annuities.  ALL's Group pension products
include guaranteed investment contracts and retirement annuities.

The recent merger and acquisition speculation has found its way
to Allstate and the stock has rallied on the news.  Rumors have
surfaced of potential acquisitions in the financial services
group and investors quickly opened new positions in issues they
believe are possible candidates.  Option trading has been active
in Allstate and Implied Volatility remained high in heavy volume
this week as the speculation spread.  A number of insurers and
banks were mentioned as possible suitors including American
International Group (AIG).  With the recent change in technical
character, this play offers an excellent way to participate in
the bullish, merger speculation.

This position is based on recent increased activity in the stock
and underlying options.  The position offers favorable risk/reward
potential for those who are bullish on the issue but as with any
speculative play, it should be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.


PLAY (conservative - bullish/debit spread):

BUY  CALL  JUN-20.00  ALL-FD  OI=117  A=$6.25
SELL CALL  JUN-22.50  ALL-FX  OI=490  B=$4.00
INITIAL NET DEBIT TARGET=$2.00-$2.12  ROI(max)=17% B/E=$22.12

Chart =
/charts/charts.asp?symbol=ALL

*****

CCU - Clear Channel Communications  $76.19  *** Merger-Mania! ***

Clear Channel Communications is a diversified media company with
two business segments, broadcasting and outdoor advertising.  The
broadcasting segment includes both radio and television stations
for which the company is the licensee and radio and television
stations for which it programs and/or sells air time under local
marketing agreements or joint sales agreements.  The broadcasting
segment also operates radio networks.  The outdoor advertising
segment includes advertising display faces for which the company
owns and/or operates under lease management agreements.

Radio and Television has been a strong sector among media shares
in recent weeks and CCU is one of the top companies in the group.
Today the company announced that sports and entertainment promoter
SFX Entertainment (SFX) has agreed to settle pending shareholder
lawsuits, clearing the way for its planned merger with CCU.  With
approval of the transaction by SFX's stockholders, the merger is
expected to close early in the third quarter of 2000.  This move
follows another recent acquisition agreement with AM/FM Inc. (AFM)
and both deals are expected to significantly advance CCU's
industry-leading position.

There are two ways to participate in the bullish trend of the
issue.  First with CCU options:


PLAY (aggressive - bullish/credit spread):

BUY  PUT  JUN-65  CCU-RM  OI=2   A=$0.81
SELL PUT  JUN-70  CCU-RN  OI=95  B=$1.68
INITIAL NET CREDIT TARGET=$1.00  ROI(max)=25% B/E=$69.00

Chart =
/charts/charts.asp?symbol=CCU



Or with AFM ($70.31) options:

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-55  AFM-RK  OI=0  A=$0.56
SELL PUT  JUN-60  AFM-RL  OI=0  B=$1.00
INITIAL NET CREDIT TARGET=$0.56  ROI(max)=12% B/E=$59.43

Chart =
/charts/charts.asp?symbol=AFM

*****

DITC - Ditech  $110.00  *** On The Move! ***

Ditech designs, develops and markets equipment used in building
and expanding telecommunications and cable communications
networks.  Their products fall into two categories: echo
cancellation equipment and equipment that enables and
facilitates communications over fiber optic networks.  Ditech's
echo cancellation products eliminate echo, which is a significant
problem in existing and emerging networks.  Their optical
communications products enable the implementation of wavelength
division multiplexing technology, which is becoming more widely
adopted by service providers to address network capacity
constraints.  Ditech's optical communications products are
designed to function either as stand-alone products or as a
complete system known as the Optical Path Solution.

The Ditech recovery began in mid-April and culminated in a $16
rally over the last two days.  With the Fed's inflation-fighting
bias now well known and the interest rate decision out of the
way, many of the leading technology issues will demonstrate their
dominance over lesser companies in the industry.  Based on the
outlook for telecom equipment companies, Ditech is one of the
top growth prospects in the group.  The technical character of
the issue appears to support a bullish trend in the short-term
and we are going to speculate on that optimistic forecast with
a conservative, credit spread position.

This play is based on the current price or trading range of
the underlying issue and its recent technical history or trend.
Current news and market sentiment will have an effect on this
issue.  Review the play thoroughly and make your own decision
about the future outcome of the position.


PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-65  DUI-RM  OI=0   A=$0.93
SELL PUT  JUN-75  DUI-RO  OI=11  B=$1.88
INITIAL NET CREDIT TARGET=$1.12-$1.25  ROI(max)=12% B/E=$73.88

Chart =
/charts/charts.asp?symbol=DITC




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************
See Disclaimer in section one
************

DISCLAIMER

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